FICO, the company that owns the most widely used credit score, recently announced some changes to its scoring model to more accurately predict credit worthiness. This is good news because from a lender’s perspective, I want a credit score to represent the most accurate estimate of a borrower’s credit health. It appears the changes really could help folks who use credit sparingly or who have medical collections.

Unfortunately, mortgage lenders can’t use the new model until Fannie Mae and Freddie Mac adopt it. Fannie and Freddie acknowledged last week that they will study the new FICO model as well as the Vantage Score model, which some claim also would allow more folks to qualify for credit. Unfortunately, Fannie says this study will take some time to complete as it claims switching to a new model requires extensive testing and comes with substantial costs. So, despite the promise of study, I wouldn’t look a change any time soon.

The federal government’s fiscal year ends on 9/30, and as is typical in recent years, Washington passed a Continuing Resolution (CR) rather than pass the various spending bills necessary to fund the government. In that CR is a provision that extends the use of the current USDA maps that define property eligibility for its housing programs. So, if a home is eligible today, it will remain eligible until the CR expires. And it’s entirely possible that when Congress finally passes a USDA spending bill, some legislator will slip in a provision to extend the current maps again. That said, if you’re eyeing a property that would have been ineligible on 10/1, I wouldn’t wait. Start the homebuying process now so you can take advantage of the benefits of a USDA mortgage.

Markets issued a collective sigh last week after the Federal Reserve meeting. The Fed reassured investors that interest rates will remain low for a considerable time. Interest rates, which had been rising slowly all month, paused and then relaxed a little.

So, what’s next? While this week brings some fairly important economic reports, bond markets seem to be mostly ignoring US economic data. They seem to be waiting for some definitive sign that rates should move higher. Until that sign appears, I suspect rates will remain in the same range where they’ve been all year. They’ll also remain susceptible to volatility from overseas events. If Ukraine or Syria takes an unexpected turn, rates will react. Remember that global uncertainty tends to support lower rates. The flip side is also true. A resolution to seething conflict supports higher rates.

After weeks of fairly stable mortgage rates, it was a shock that rates rose last week. This is not a sky is falling moment. Rates are off their recent lows about 1/8%.

The Federal Reserve meets this week, and market analysts attribute the rise to concern the Fed is going to change the wording of its post-meeting statement in a way that could indicate interest rate hikes are going to happen sooner than previously expected. Notice there are a lot of if’s and could’s in that concern, but the financial media has repeated the concern so often that it’s almost certain the Fed statement on Wed will affect rates.

The risk of a big jump in rates is pretty low as other factors still are creating uncertainty for financial markets. And uncertainty tends to push rates down. On the other hand, if the Fed dispels the concern, it’s possible rates could return to their previous lows in the next couple weeks.

Fannie Mae’s Aug housing survey was a bit of downer. The percentage of folks who thinks now is a good time to buy a home dropped another 3 points, and the percentage who thinks now is a good time to sell dropped 5 points. This seems to correlate with industry reports of a slow summer. It also correlates with consumers’ concerns about their personal financial situation and flat income growth.

But if you get past the headlines, the survey results do contain a few positive points that may bode well for the coming year. An increasing share of respondents think rents will rise in the next year, and the expected rate of increase also rose. An increasing percentage also think it would be easy to get a home mortgage. These are people who may be poised to buy a home given an incentive. And that incentive could be rising interest rates. Fifty percent of respondents expect interest rates to fall in the coming year, yet interest rates have been rising, albeit slowly, since the start of Sep. If this trend continues, it might push a few folks off the fence while home affordability is still favorable.

The USDA Rural Development loan is a great option for homebuyers in rural locations. It requires no down payment and has lower monthly mortgage insurance than an FHA loan.

The USDA’s definition of rural may surprise you as it includes many of the exurbs of the major TX cities. As of Oct 1st, that definition narrows a little as USDA is releasing new eligibility maps based on recent census data.

The main changes I noticed were the expansion of ineligible areas in Pflugerville, Round Rock, and San Marcos in the Austin area and Denton and McKinney in the DFW area. In addition, the ineligible area on the west side of Ft. Worth expanded significantly. However, you’re still going to find some subdivisions on the outskirts of these cities are eligible. The maps changed little in the San Antonio and Houston metros. I included a link at the end of my blog to the USDA eligibility Web site where you can compare the old and new maps for yourself.

USDA bases property eligibility on the date it receives your loan file. For most lenders, this will be a couple weeks after loan application. So, if you’re buying a home using the old maps, you need to act soon to beat the changes.

Mortgage rates remain stuck, which is a good thing when rates are this low. However, with last Fri’s sorry US jobs report, some are wondering why rates didn’t move lower. The simplest reason seems to be that markets didn’t believe the report. The report showed almost 100k fewer jobs created in Aug than was expected while most other economic indicators (except housing) are showing moderate growth.

Another reason may be Europe. We’ve talked at length the last few weeks how ultra-low European bond rates are pressuring US rates. The European Central Bank did little last week to alter the rate picture. It hinted at a quantitative easing program to lift European economies but provided little detail. Then, it seemed to backtrack. The result was some rate market volatility but ultimately little change.

This week’s most significant economic report is retail sales on Fri. Until then (and quite possibly beyond), I look for rates to react to any global headlines (such as from Ukraine or Syria) but otherwise remain stuck.

The USDA RD loan is a great option for homebuyers in more rural locations. The loan requires no down payment and has much lower monthly mortgage insurance than an FHA loan.

Unfortunately, the gap between the two will close a little this year. For all loan commitments after 9/30, the USDA is increasing its monthly MI rate from 0.4% to 0.5%.

That still makes it a bargain compared to FHA. While USDA does have a higher up-front fee, 2% vs. 1.75% for FHA, look at the difference in monthly payment between the two. For a $150k FHA loan, the monthly payment including mortgage insurance would be about $863. For a USDA loan, the payment would be about $757, more than $100 less.

If you’re thinking about using a USDA loan, be aware that USDA bases the fee increase on the date it commits to the loan, not the date you apply. You probably should make your loan application no later than next week if you want to beat the deadline.

US interest rates have been under pressure for the last couple months from events overseas, both the various armed conflicts and crummy economic data coming out of Europe. As we discussed before, it’s hard for US rates to rise when European rates are setting record lows.

Two events this week could add some volatility and break rates out of their summer slumber. Thursday brings the European Central Bank meeting. The ECB has been hinting that it will enact a quantitative easing program ala the Federal Reserve to combat weak economic growth and potential deflation. Recent analysis suggests a program announcement won’t happen this week, but I suspect markets will be disappointed if the ECB doesn’t flesh out the idea a little further, and that disappointment could bump rates up a little.

Friday brings the US jobs report, typically the most important economic report each month. I think a 25% miss either way (stronger or weaker than expected) could break markets fixation with overseas events, at least temporarily. However, in the case of a stronger report, I think the European wet blanket will temper any reaction. But such domestic strength could push rates back up to the top of their current range, which is about 1/8% higher than today’s rate.